Buy to let

Yes, in the current climate I know you might be saying …. well nothing actually!

But let’s assume you’re one of those property investors who’s not going to be deterred by the current investment climate. And let’s assume you’re one of those property investors who actually sees opportunity in bucking the trend. What sort of properties and what sort of areas are best for buy to let right now?

Here’s are a few tips on how to spot the best properties for a buy to let investment:

* Lower priced properties. It’s almost always the case that the more you pay for a property the lower the rental yield will be. Lower priced properties often return the best yields, have the best potential for capital appreciation and, because their rental value is lower too, have the widest possible rental market.

* Smaller properties. Yes, maybe everyone dreams of a living in a house with five bedrooms and a swimming pool but in the scheme of things there’s relatively little demand for these kinds of properties – in addition to which the high purchase price means yields are low.

By and large most people (often, even if they have a healthy budget) are looking for small, compact, cheap to run properties so there’s more demand and they’re easier to let. Flats, terraced properties and small detached/semi-detached fit the bill perfectly.

* Properties in need of renovation and refurbishment. These offer scope to add value and earn yourself an instant capital gain before you’ve even put them onto the rental market.

Just be aware the renovations and improvements return you a profit by way of capital gain – the increased rental value of a renovated property will probably not be enough to justify the renovation costs in itself.

* Areas with good facilities. Yes, maybe many people dream of living in a quiet rural village with only passing sheep for company. But such locations aren’t practical for most people looking to rent property. Unless they’re easily commutable quiet rural areas don’t have many job vacancies and, in particular, have few well paid jobs.

When selecting a property for buy to let the following types of areas are usually best: Cities and towns. Areas that have a good selection of shops and ideally a supermarket. Good bus/train connections. Good road connections. Nearby schools and facilities for childcare. Decent social/entertainment facilities in close proximity.

* Areas that aren’t in the catchment areas of very desirable schools. While these are the object of many home buyers’ desires you’ll usually pay a high premium when buying these properties -yet won’t necessarily be able to charge a high premium on the rent.

See this article for more information on buying in school catchment areas.

* Low income areas. In these places few or even any people are able to afford to buy, so there’s more demand for rental property. These kinds of areas are also likely to offer the best potential for attracting long term tenants, rather than tenants who move every year or so.

Another good reason for targeting these areas – when you’re buying there’s less competition from owner-occupiers and so selling prices usually offer good value.

* Areas that attract temporary or contract workers, including workers from abroad. These areas normally have continual, brisk demand for rental property so properties are easier to let and voids are minimised.

Tip. Look for areas that have large business/industrial parks or warehouse units. Or areas where these are planned.

Areas that are popular with students can be good, for much the same reasons.

* Properties that have potential for letting uses other than a standard family or professional let. For example, potential to let as a shared property, holiday property or daily/weekly rental. These kinds of properties offer potential to earn enhanced yields.

You might find this article useful: 12 Ways To Improve Your Letting Yields

When you’re selecting a property for buy to let slip out of your own shoes – and put yourself in your prospective tenants! Ask yourself if the area has plenty of potential tenants. Ask yourself if the area and type of property is likely to be in demand with people who want and need to rent a home.